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Two faces of April: Will stocks soar or swoon?

Adam Shell, USA TODAY
5:34 p.m. EDT April 1, 2013

A trader reacts by the end of trade at the New York Stock Exchange on March 5, 2013. The Dow Jones industrial average closed at 14253.77 points topping the previous record high of 14,164 achieved on October 9, 2007.(Photo: Emmanuel Dunand, AFP/Getty Images)

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After record-setting run, Wall Street wonders what April will bring

In past 50 years, April has been best-performing month for the Dow

But it has been the starting point for corrections the past three years

NEW YORK — The stock market hit high after record high in the first quarter. But what happens in April is tough to predict, despite the market's mojo.

The reason: While April has been the top-performing month for stocks the past 20 and 50 years, the first month of the second quarter has marked the starting point for stock market corrections the past three years.

Indeed, the Dow Jones industrial average finished the first quarter up 11.3%, its best start in 15 years, and at a fresh all-time peak of 14,578.54.

But the past three years, the Dow suffered sharp downturns after stocks stalled in April.

In 2010, the first flare-up of Europe's debt crisis caused a 13.6% drop. In 2011 a 16.8% drop that began in April intensified in August when the USA lost its triple-A credit rating; that downdraft finally bottomed in early October. And last year, a recession scare kept the Dow flat in April, marking the start of an 8.9% decline that began May 1.

Some Wall Street strategists warn that April could see the start of a "spring swoon" again in 2013.

"I believe it will be a different market than it was in the first quarter," says Mark Lamkin, CEO at Lamkin Wealth Management. "I think the spring swoon trend will continue this year. The market is probably looking at a 5% to 7% correction."

Catalyst for the drop, he says, could be reverberations from Europe's debt crisis. Or renewed policy gridlock in Washington. Or simply the market rising too far, too fast.

Jeff Kleintop, chief market strategist at LPL Financial, also warns of the potential for a stormy April. In a recent research note he said he's "watching closely" for signals that a downturn is coming.

Among the red flags he's looking for: a drop in consumer confidence, which had been rising steadily but fell sharply in March. He's also keeping tabs on a Wall Street "fear gauge" for signs of investor complacency. And he's watching to see if analysts lower their profit estimates in coming quarters.

The good news? Neither Kleintop or Lamkin is predicting a deep plunge. Rather, they expect a drop of 5% to 10%.

Lamkin is telling clients to use the price drop as a buying opportunity.

Finally, don't rule out the market defying the skeptics and following its normal bullish April pattern. In the past 20 years, the Dow has posted average gains of 2.7% in April, and been up 70% of the time.

"What's in store for April? History suggests even more gains," says Paul Hickey, co-founder of Bespoke Investment Group.